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The Allocation of Investment across Vintages of Technology

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Author Info
Aruga, Osamu

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Abstract

This paper develops and analyzes a growth model that features complementary long-lived and short-lived vintage-specific capital. The model generates two distinct investment patterns: if the rate of vintage-specific technological progress is above a threshold, then all new investment is allocated to the capital that embodies the frontier technology; otherwise, some investment is allocated to short-lived capital that embodies vintage technology. Assuming long-lived intangible and short-lived tangible capital, the model provides two important quantitative implications: (i) acceleration in the rate of vintage-specific technological progress can cause an abrupt reallocation of investment towards modern capital; and (ii) equipment price-changes do not necessarily reflect the rate of vintage-specific technological progress.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6043.

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Date of creation: 15 Nov 2009
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Handle: RePEc:pra:mprapa:6043

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Related research
Keywords: Vintage Capital; Intangible Capital; Capital Heterogeneity; Pricing of Capital Goods; Maintenance and Repair;

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
O3 - Economic Development, Technological Change, and Growth - - Technological Change
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September. [Downloadable!] (restricted)
  2. Ellen R. McGrattan & James A. Schmitz, Jr., 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13. [Downloadable!]
  3. Andrew Atkeson & Patrick J. Kehoe, 2005. "Modeling and measuring organization capital," Staff Report 291, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  4. Benhabib, Jess & Rustichini, Aldo, 1990. "Vintage Capital, Investment And Growth," Working Papers 90-22, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  5. Oliner, Stephen D. & Sichel, Daniel E., 2003. "Information technology and productivity: where are we now and where are we going?," Journal of Policy Modeling, Elsevier, vol. 25(5), pages 477-503, July. [Downloadable!] (restricted)
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  6. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Jovanovic, B. & Nyarko, Y., 1996. "Learning by Doing and the Choice of Technology," Working Papers 96-25, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  8. John Laitner & Dmitriy Stolyarov, 2003. "Technological Change and the Stock Market," American Economic Review, American Economic Association, vol. 93(4), pages 1240-1267, September. [Downloadable!]
  9. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June. [Downloadable!] (restricted)
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  10. Leonardo Felli & Francois Ortalo-Magne, . ""Technological Innovations: Slumps and Booms''," CARESS Working Papres 97-17, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences. [Downloadable!]
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  11. Mullen, J. K. & Williams, Martin, 2004. "Maintenance and repair expenditures: determinants and tradeoffs with new capital goods," Journal of Economics and Business, Elsevier, vol. 56(6), pages 483-499. [Downloadable!] (restricted)
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Cited by:
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  1. Boyan Jovanovic, 2008. "When Should Firms Invest in Old Capital?," NBER Working Papers 14000, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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